The Multinational Monitor

December 1988 - VOLUME 9 - NUMBER 12

C O R P O R A T E   E T H I C S


By Jim Donahue

FOUNDATIONS GIVE AWAY billions of dollars each year. In some cases, foundation money is derived from and invested in companies that operate in South Africa or manufacture nuclear weapons. While it might seem that foundations involved in "charitable" giving would exercise greater moral discretion in determining investments, corporate accountability activists say this has never been the case.

Multinational Monitor investigated the 10 largest foundations (measured by the value of their assets) to determine where their money is invested before being used for charitable purposes. By comparing Form 990 tax filings for these private foundations for 1987 with a list of companies doing business in South Africa, and a list of the top 50 nuclear weapons contractors, Multinational Monitor was able to determine the type of investments held by 10 leading foundations. The results are troubling. South Africa-Linked Investments In 1987, each of the top 10 foundations held investments in companies tainted by ties to South Africa in 1987. Collectively, these foundations gave $1 billion in grants in 1987. At the same time, they held a combined total of almost $6 billion worth of stock in companies profiting from apartheid.

The Lilly Endowment, set up by Indiana-based pharmaceutical manufacturer Eli Lilly, had $1.72 billion invested in companies doing business in or with South Africa in 1987. Although the endowment maintains itself as a "separate entity from the [Eli Lilly] company," 99 percent of the foundation's investments are held as stock in Eli Lilly & Co., which had $30 million in South Africa sales and assets in 1986. Susan Conner, communications director for the Lilly Endowment, says, "It would be irresponsible of us to dump such a good performing stock for our charitable recipients over a disinvestment policy that has such a questionable effect." Besides, she says, "we are an apolitical organization; these investments ... certainly are not in apartheid" directly. But there is no question that Eli Lilly benefits from the apartheid structure. Edward West, Eli Lilly's manager of corporate communications, refused to disclose whether the wages paid to black employees of Eli Lilly in South Africa are equal to wages paid to whites.

The Ford Foundation, having spent over $54 million in 1987 to solve problems of urban poverty, follows Lilly with $1.32 billion invested in companies doing business in South Africa, accounting for 43 percent of its total investment value. In South Africa there are only two teachers for every 100 black students, compared to five teachers for every 100 whites and Ford invests in corporations that exploit this educational gap to pay slave wages. Yet, Ford gave over $33 million in grants in 1987 specifically for "strengthening the quality and effectiveness of the educational system..."

The Robert Wood Johnson Foundation funds health-related organizations and is named after the son of the late founder of Johnson & Johnson Co., maker of consumer, health care and pharmaceutical products. The foundation follows Ford with $1.27 billion, 72 percent of its total investment value, in companies with ties to South Africa. Sixty-five percent of these tainted investments are Johnson & Johnson stock holdings. The company sold $490 million worth of products in South Africa in 1986. The foundation refers to itself in its annual report as "an agent for change."

Kellogg Foundation has 44 percent of its total investment value in South Africa-tied companies. At the same time these companies helped prop up the racist South Africa regime, Kellogg was distributing $5 million for projects "preparing black South Africans for leadership roles by which they can be instrumental in shaping their nation's future."

The J. Paul Getty Foundation, founded by the oil-rich family of the same name, had over $500 million invested in companies doing business in or with South Africa. The Andrew W. Mellon Foundation held $430 million in such investments. The Kresge Foundation gave almost $50 million in grants in 1987. At the same time, it held a hefty $277 million in corporations that profit from apartheid. The Rockefeller Foundation held $233 million in corporations doing business in or with South Africa. The John D. & Catherine T. MacArthur Foundation gave over $20 million in 1987 for projects promoting "peace and international cooperation." Eighteen million dollars of its investments were in South-Africa tied companies. The Pew Charitable Trusts, a collection of seven individual charitable funds, had $24 million invested in companies with South Africa connections.

Tom Troyer, a Washington attorney, has researched the legality of foundation divestment from South Africa. "There is not any legal impediment" to divestment, he says, as long as foundations comply with Internal Revenue Service regulations. Despite the legal right to shape their own portfolios, and the effect divestment of their extensive stock holdings could have on the anti-apartheid movement, there are no indications that foundation divestment is going to occur on a large scale. Part of the problem is financial: the concern that divestment could lead to a substantial loss of investment income. A bigger problem, however, may be ignorance.

Donald Ross, of the Rockefeller Family Fund, points out that many foundations "simply turn over their portfolio to a bank trust department or to an outside manager, and that's the last they see of it." Nuclear Weapons-Linked Investments Corporations that receive government contracts to build components for nuclear weapons are popular among leading foundations. Collectively, the top 10 had over $1 billion, roughly equal to their grants, invested in the top 50 nuclear weapons contractors in 1987.

The Ford Foundation has almost half of the investments held by the 10 foundations in these corporations. The holdings account for 16 percent of Ford's total investment value, or $496 million, with the largest holdings being in nuclear contract-rich IBM and General Electric.

J. Paul Getty Foundation owns $173 million worth of stocks and bonds, 7 percent of its total investment value, in corporations that receive nuclear weapons contracts.

The Kresge Foundation placed 11 percent of its investments in nuclear weapons contractors in 1987. Like the Ford Foundation, the largest holdings are IBM and General Electric.

The Rockefeller Foundation claims to "promote the well-being of mankind throughout the world." To generate funds for this admirable goal, the foundation held $72 million in stock in nuclear weapons contractors in 1987.

The Andrew W. Mellon Foundation held $82 million, or 6 percent of its total investment value, in such companies, with IBM and General Electric together accounting for over half of its nuclear-weapons tied investments.

Tom Gore, vice president of communications for the Robert Wood Johnson Foundation, would not comment on the $54 million the foundation had invested in nuclear weapons contractors in 1987. "It's been the policy of this foundation simply not to talk about its portfolio at all," he said. Asked whether the foundation used any moral or ethical standards to guide investment decisions, Mr. Gore said, "I wouldn't want to answer that."

Lilly Endowment's only investment link to nuclear weapons contractors is by virtue of a General Motors subsidiary. The value of the investment was $6 million. Investments in nuclear weapons contractors by MacArthur, Pew and Lilly each comprise less than 5 percent of their portfolios. Yet the fair market value of those holdings was more than $15 million combined. Tom Smith, director of media relations for the Council on Foundations, says that foundations "differ in terms of how they invest their money."

If the investments of these 10 foundation--the largest in the country--are any indication, portfolio divestment by foundations has been neither a frequent tool for pressuring corporations nor a subject foundations are eager to see discussed.